Are Lagging Indicators the Reason So Many New E-Mini Traders Implode?

There can be no doubt that an extraordinary number of first-time e-mini traders are finished with trading within three months. To be sure, various statistics put the failure rate upward of 90%. Surely there must be some reason for this extraordinary rate of failure. In my opinion, first-time e-mini traders fail because of the tired methodology they are taught.

After retiring as an institutional trader, I was absolutely dumbfounded by the training methods and e-mini trading methodology that was being passed off as trading education. This is not to say that every trading educator is past his/her expiration date; I have found several educators that employ a trading system that does not rely upon dated technology and indicators/oscillators; much of what I see rely upon methods adapted from J. Wells Wilders book, “New Strategies in Technical Trading Systems.” This book was written in 1978.

I must admit that I am a dyed in the wool e-mini scalper, and never hold trades overnight. As a scalper, I am not in the short, intermediate, or long term market prognostication business. I am interested in what is going on right now in the market. I am in the ultra-short market movement business. While I like to trade the trends, my trends are much shorter in duration than you might expect.

With all that being said, it is my belief that a good deal of money is lost by first-time e-mini traders through the use of lagging indicators. While most new traders do not describe themselves as scalpers, in essence they are scalpers.

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How can you be an effective scalper if your scalping indicators are between 1-3 bars behind the real time indicators? You can’t.

It is my belief, and many like me, that moving averages, Rate of Change Indicators, and most oscillators lag the market by about 7-8 ticks. If you are trying to get 10+ ticks on a trade, as most scalpers like to target, it is nearly impossible if you are starting 7 or 8 ticks late. Most lagging indicators sound a buy/sell decision 7-8 ticks late. Assuming you are using renko Bars, range bars, or volume bars set to 5-6, you are initiating the trade after two bars have been formed. In my opinion, it is a quantum leap to believe that since the market has moved 8 ticks in one direction, that it will continue to trade in the same direction. Take a look at the market on an average day and you find dozens of two bar moves that reverse at the conclusion of the second bar. It’s simply not a methodology that gives traders consistent high-probability trades.

On the other hand, trading tools that measure order flow, analyze volume, assist in tape reading and many others allow traders to analyze and make e-mini trading decisions that are of a higher-probability than their lagging cousins.

In summary, I have stated that lagging indicators are not very good trade indicators for scalpers. In my experience, most new traders are taught to trade with moving averages and similar methods and find themselves losing because of the inadequate nature of the trading methodology. Finally, I have suggested that real time indicators give scalpers a much better chance of success.

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